1.20 Query:

Accounting treatment for unclaimed amount

of debentures/bonds.

1. A public sector undertaking is registered under the Companies Act, 1956. One of the sources of raising funds is through debentures which are of the following types:

            (i)         Privately placed debentures.

(ii)        Public Sector Bonds (Public Issue).

            (iii)       Privately placed Public Sector Bonds.

            (iv)       Capgain Debentures/Bonds.

2. In some of the above cases, the debentures/bonds could not be redeemed due to non-surrender of duly discharged debenture/bonds certificates by the holders. Since the debentures/bonds are to be redeemed on time, the unclaimed amount against which debenture certificate is not received is transferred to a separate account in books, i.e., unclaimed debentures account. The company has been sending reminders to debenture holders at their last known addresses who are not responding/claiming the redemption proceeds. Some of these amounts are outstanding for more than 3 years.

3. The statutory auditors, while reviewing the above head of account, have desired that the long outstanding entries may be got adjusted at the earliest. In order to clear long outstanding entries, the company with the approval of the competent authority, has framed the following accounting policy:

“Debentures/Bonds and interest thereon remaining unclaimed for more than three years from due date of redemption is treated as income. Subsequent claims, if any, shall be treated as an expenditure in the year of payment.”

4. The government auditors have stated in respect of the above accounting policy that the principal amount of debentures/bonds is in the nature of a ‘loan’ to the company and, hence, cannot be treated as income even after the expiry of the redemption period of such debentures. However, accounting treatment proposed to be given to unclaimed interest is not objectionable and can be treated as income and that the subsequent claims pertaining to interest can also be dealt with in the manner as stated in the accounting policy.

5.  Keeping the above in view, opinion has been sought from the Expert Advisory Committee on the following issues:

(i)         Whether the accounting policy framed by the company is correct.

(ii)        Whether any other accounting treatment can be given to the above amount.

                                                                     Opinion                                        October 17,1997

1. The Committee wishes to state at the outset that the legal position of unclaimed debentures/bonds should be determined considering all the relevant laws applicable, e.g., the Limitation Act, 1963 and the Companies Act, 1956, and the terms of the issue of debentures/bonds. The Committee has not attempted to interpret the legal position in view of Rule 2 of the Advisory Service Rules. The accounting treatment would depend upon the legal position in the matter. Thus, the Committee is of the opinion that in case the company is legally obliged to pay the amount of the relevant debentures or the interest thereof if a claim is made, it would not be proper to treat the same as income. Unless a liability ceases to exist, it cannot be treated as income.

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